scholarly journals Political and financial background in board interlocking and earnings management in Brazil

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Cristian Baú Dal Magro ◽  
Roberto Carlos Klann
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Management Practices ◽  
Accounting Information ◽  
Real Earnings Management ◽  
The Political ◽  
Content Type ◽  
Quality Of Accounting Information

Purpose Although board interlocking underlying forces are largely hidden, the purpose of this paper is to provide managers, auditors, analysts, regulators and other stakeholders with sociological board interlocking information considering the different backgrounds of their members. Design/methodology/approach The research sample gathered 1,606 observations from 2010 to 2017. For data analysis, the direct and indirect board interlocking linkages, considering the different backgrounds of board members, established the centrality indicators. Subsequently, the authors used these indicators according to each measured background in the regression models. Findings The results indicate that the political background of board interlocking members is positively related to real earnings management practices, while the financial background has a mitigating effect on such practices. Research limitations/implications The findings suggest that individual skills and interests conveyed across the corporate social network have shaped corporate governance, with distinct impacts on the quality of accounting information. Practical implications The authors conclude that both backgrounds could have implications on agency conflicts, increasing (policy) or reducing (financial) information asymmetry between the company and its various stakeholders, which indicates that the authors must consider sociological and not just economic aspects within corporate governance. Social implications The sociological background of individuals is necessary for the congruence of monitoring mechanisms, and consequently, the quality of accounting information. Originality/value This study examines the influence of the political and financial background of board interlocking members on real earnings management practices in Brazilian publicly traded companies in the International Financial Reporting Standards post-adoption period.

Accounting quality and media attention around seasoned equity offerings

2018 ◽  
Vol 26 (3) ◽  
pp. 443-462 ◽  
Author(s):  
Fernando Comiran ◽  
Tatiana Fedyk ◽  
Joohyung Ha
Keyword(s):  
Earnings Management ◽  
Media Coverage ◽  
Accounting Information ◽  
Real Earnings Management ◽  
Equity Offerings ◽  
Content Type ◽  
Endogenous Factors ◽  
Media Attention ◽  
Quality Of Accounting Information

Purpose This paper aims to investigate how media coverage affects the quality of accounting information for seasoned equity offering (SEO) firms. Design/methodology/approach The sample includes SEOs completed between January 1993 and December 2014 in the USA that are available from Thomson Financial’s Securities Data Company. The FactSet database was used to measure the amount of media coverage. The paper considers two types of earnings management: accrual-based earnings management and real earnings management. Findings This study finds that the media serves as a watchdog for real earnings management but does not affect accrual manipulations. These findings hold when endogenous factors affecting firms’ earnings management choices are controlled for and also when alternative time windows for media coverage are examined. Originality/value This paper is the first to demonstrate that media attention affects the quality of accounting information during equity offerings, as it successfully reduces real earnings management.

scholarly journals Board characteristics and earnings management in Sri Lanka

2019 ◽  
Vol 27 (1) ◽  
pp. 2-18
Author(s):  
Shanmugavel Rajeevan ◽  
Roshan Ajward
Keyword(s):  
Corporate Governance ◽  
Sri Lanka ◽  
Earnings Management ◽  
Management Practices ◽  
Stock Exchange ◽  
Governance Structure ◽  
Real Earnings Management ◽  
Content Type ◽  
Board Characteristics ◽  
Market Capitalisation

Purpose The purpose of this paper is to examine the association between designated corporate governance attributes and the degree of earnings management in selected quoted companies in Sri Lanka. Design/methodology/approach In total, 70 listed companies in Colombo Stock Exchange (CSE) were selected based on the highest market capitalisation for the period covering from 2015 to 2017 and representing beverage, food and tobacco, diversified, hotel and travel, manufacturing, oil palms and health care sectors, which accounted for 59.9 per cent of the total market capitalisation of CSE. Findings This study found a positive relationship between CEO-Chair duality and earnings management. Practical implications The insights may also provide investors, economic analysts and regulators with early caution indicators of potential problems in a corporation regarding corporate governance failures and aid stakeholders in assessing the effectiveness and efficiency of the board and corporate governance structure and earnings management methods. Originality/value This study extends the extant research on board characteristics and real earnings management by adopting prominent research design and modernised data. This study offers evidence on how selected audit and board committee’s characteristics influence real earnings management practices.

Did Japanese-SOX have an impact on earnings management and earnings quality?

2015 ◽  
Vol 30 (4/5) ◽  
pp. 482-510 ◽  
Author(s):  
Masumi Nakashima ◽  
David A. Ziebart
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Reporting System ◽  
Earnings Quality ◽  
Business Environment ◽  
Real Earnings Management ◽  
Material Weakness ◽  
Content Type ◽  
Accruals Management

Purpose – The purpose of this paper is to investigate whether Japanese Sarbanes – Oxley Act (J-SOX) impacted earnings management and earnings quality of public firms in Japan. Design/methodology/approach – This archival study compares earnings management and earnings quality of firms that disclose at least one material weakness with a sample matched on size and industry without a material weakness. Findings – The authors investigate whether the differences in regulations, corporate governance and regulatory environment acceptance influence earnings management and earnings management of Japanese listed firms, relative to findings in the USA. They found the Japanese results to be slightly different from the results found in previous USA studies. First, the time-series observations suggest that while accruals management and real earnings management remained unchanged for control firms, accruals management and real earnings management increased for material weaknesses disclosing firms following J-SOX. The regression analyses suggest that accruals management for both the groups is significant in the pre-and post-J-SOX periods, but that real earnings management declined for both the groups post-J-SOX. Second, while, both accruals quality and accuracy of cash flow predictions improved in the post-J-SOX period. Research limitations/implications – The sample of Japanese firms disclosing a material weakness is small because the number of firms that disclose internal control deficiencies is decreasing in Japan. The authors have no evidence that their results are not generalizable to a larger sample and leave this for future research. Practical implications – The authors provide evidence that J-SOX, which does not have a direct reporting system, does not constrain earnings management. Their results drive the regulator to reconsider whether the reporting system works in the Japanese business environment. Additionally, their results show that J-SOX has no effect on earnings management; thus, regulators need to reconsider the governance function of directors and internal auditors. This paper communicates to the world how J-SOX works in Japan through changes in earnings quality and management post J-SOX and the root problems. Originality/value – This paper is the first (of which the authors are aware) to examine whether J-SOX impacted both earnings management and earnings quality in Japan. This paper discusses how the differences in regulations and corporate governance as well as the differences between USA-SOX and J-SOX may explain the results observed in Japan. This paper provides results regarding whether J-SOX improved earnings quality.

The effect of gender composition in joint audits on earnings management

2019 ◽  
Vol 34 (5) ◽  
pp. 549-574 ◽  
Author(s):  
Fan-Hua Kung ◽  
Yu-Shan Chang ◽  
Minting Zhou
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Financial Information ◽  
Real Earnings Management ◽  
Gender Composition ◽  
Institutional Setting ◽  
Content Type ◽  
Empirical Results ◽  
Industry Expertise

Purpose This paper aims to examine the association between gender composition of joint auditor pairs and the quality of reported financial information. More specifically, the authors attempt to assess whether and how these gender compositions affect the client firms’ earnings management behavior. Design/methodology/approach The authors utilized the unique institutional setting of Taiwan, where joint auditors are required by law. They studied the effect of gender in joint auditor pairs on accrual earnings management and real earnings management to achieve financial reporting objectives. Findings Empirical results indicate that engaging a woman as the lead auditor can constrain accrual earnings management, regardless of whether the joint auditor is male or female. The authors also found that all-male signing auditor pairs with industry expertise can significantly reduce accrual earnings management. The authors also documented that all-female signing auditor pairs and auditor industry expertise could drive clients to engage in real earnings management activities as an alternative to accrual earnings management. Originality/value The empirical results demonstrate that gender indeed plays a role in the quality of client’s reported financial information. Female auditors in a lead position and male auditors with industry expertise tend to be more successful in delivering better-quality audits.

Board and audit committee effectiveness in the post-ASX Corporate Governance Principles and Recommendations era

2017 ◽  
Vol 43 (10) ◽  
pp. 1137-1151 ◽  
Author(s):  
Maryam Safari
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Boards Of Directors ◽  
Audit Committee ◽  
Management Practices ◽  
Reporting Quality ◽  
Audit Committees ◽  
Content Type ◽  
Aggregate Effect

Purpose The purpose of this paper is to contribute to the corporate governance literature by examining the aggregate effect of board and audit committee characteristics on earnings management practices, particularly in the period following the introduction of the second edition of the Australian Securities Exchange (ASX) Corporate Governance Principles and Recommendations. Design/methodology/approach This paper begins by embarking on an extensive review of extant empirical research on boards of directors and audit committees. Then, the paper reports on the use of a quantitative analysis approach to specify the relationship between board and audit committee characteristics (introduced by the ASX Corporate Governance Council) and the level of absolute discretionary accruals as a proxy for earnings management. Findings The findings suggest that greater compliance with board and audit committee principles is linked to lower earnings management, indicating that deliberate structuring of boards and audit committees is an effective approach for enhancing a firm’s financial reporting quality and providing support for the efficacy of the second edition of principles and recommendations related to boards and audit committees suggested by the ASX Corporate Governance Council. Practical implications This study significantly extends the literature and has notable implications for financial reporting regulators, as the findings regarding the monitoring role of boards and audit committees should be beneficial for future revisions of corporate governance principles and recommendations. Originality/value This study focuses on the aggregate effect of board characteristics recommended by the Australian Corporate Governance Council on earnings management practices, and the results support the effectiveness of the board and audit committee characteristics recommended by the ASX Corporate Governance Council. New directions for future improvements to the principles and recommendations are identified.

The impact of corporate governance on earnings quality: evidence from Peru

2019 ◽  
Vol 9 (4) ◽  
pp. 527-541
Author(s):  
Mauricio Melgarejo
Keyword(s):  
Corporate Governance ◽  
Earnings Quality ◽  
Accounting Information ◽  
Content Type ◽  
Good Corporate Governance ◽  
Self Selection ◽  
Quality Of Accounting Information ◽  
Governance Practices ◽  
The Impact

Purpose The purpose of this paper is to explore whether firms with good corporate governance practices in countries with high levels of political and economic uncertainty, such as Peru, present a higher quality of accounting information. Design/methodology/approach This study uses a multivariate regression analysis to investigate the impact of good corporate governance practices on the quality of accounting information for the firms listed in the Lima Stock Exchange (LSE). Findings Firms included in the Good Corporate Governance Index, in the LSE, present more value relevant, more persistent and more conservative accounting reports. These results hold after controlling for a self-selection bias. Originality/value It is the first paper to explore the impact of good corporate practices on earnings quality in Peru. Also, this study uses a two-state regression methodology to control for the self-selection bias in the sample.

scholarly journals The impact of corporate governance mechanisms on real and accrual earnings management practices: evidence from Jordan

2019 ◽  
Vol 19 (6) ◽  
pp. 1167-1186 ◽  
Author(s):  
Lara Al-Haddad ◽  
Mark Whittington
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Management Practices ◽  
Reporting Quality ◽  
Content Type ◽  
Public Firms ◽  
Corporate Governance Mechanisms ◽  
The Impact

Purpose This paper aims to investigate the impact of corporate governance (CG) mechanisms on real (REM), accrual-based earnings management (AEM) and REM/AEM interaction in Jordan following the 2009 Jordanian CG Code (JCGC). Design/methodology/approach The study used a sample of 108 Jordanian public firms covering 2010-2014. Hypotheses are tested using pooled OLS-regression models. Findings The authors find that both institutional and managerial ownership constrain the use of REM and AEM. In contrast, both independent directors and large shareholders are found to exaggerate such practices, and CEO-duality is found to exaggerate REM only. However, foreign ownership does not appear to have a significant impact. They further find that managers use REM and AEM jointly to obtain the greatest earnings impact. Practical implications The findings have important implications for policymakers, regulators, audit professionals and investors in their attempts to constrain earnings management (EM) practices and improve financial reporting quality in Jordan. Originality/value The authors believe this to be the first Jordanian study examining the relationship between CG mechanisms and both REM and AEM following the introduction of the 2009 JCGC, as well as the first in Jordan and the Middle East to examine board characteristics and REM. Moreover, it is the first to test for the potential substitution of REM and AEM since the 2009 JCGC enactment. As such, the findings draw attention to EM practices and the role of monitoring mechanisms in Jordan.

Related party transactions and earnings management in Jordan: the role of ownership structure

2020 ◽  
Vol 18 (3) ◽  
pp. 505-531
Author(s):  
Mohammad Alhadab ◽  
Modar Abdullatif ◽  
Israa Mansour
Keyword(s):  
Developing Countries ◽  
Earnings Management ◽  
Financial Reporting ◽  
Ownership Structure ◽  
Management Practices ◽  
Real Earnings Management ◽  
Content Type ◽  
Related Party Transactions ◽  
Practical Implications

Purpose The purpose of this study is to examine the relation between related party transactions and both accrual and real earnings management practices in Jordanian industrial public-listed companies, taking into account the uniqueness of the Jordanian company ownership structure. Design/methodology/approach Data were collected from Jordanian industrial public-listed companies for the period 2011–2017. Accrual earnings management is measured by using the modified Jones model, whereas real earnings management and related party transactions are measured by using relevant proxies. A regression model is developed and used to assess the relation between related party transactions and earnings management, taking into account the effects of ownership concentration, family ownership and institutional ownership levels of the companies involved. Findings Accrual earnings management is negatively associated with related party transactions. Regarding the role of ownership structure, the presence of institutional investors is positively associated with using both related party transactions and real earnings management, whereas ownership concentration plays an efficient role to mitigate the use of both accrual earnings management and related party transactions. No statistically significant relations between real earnings management and related party transactions exist. Practical implications This study has direct practical implications for the Jordanian regulatory authorities to enact regulations to limit the misuse of related party transactions and earnings management transactions and ensure sufficient monitoring of these transactions because of their prevalence. Jordanian companies should also enhance their corporate governance systems to better approve and monitor such transactions, including enhancing the role of independent and non-controlling board members in this process. Originality/value Related party transactions are considered as a major concern of financial reporting quality in developed countries, and such transactions are found to be relatively more problematic in developing countries, where corporate governance is generally weak, and there is limited disclosure and transparency in financial reporting. From this perspective, this study is one of the very few studies in developing countries that explore the issue of related party transactions and their association with earnings management practices. Thus, the findings of this study can arguably be to some extent generalized to other developing country contexts, because of relatively similar business environment conditions, and therefore potentially fill a gap represented by the paucity of similar studies in developing countries.

Ownership structure and real earnings management: evidence from an emerging market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shaker Dahan AL-Duais ◽  
Mazrah Malek ◽  
Mohamad Ali Abdul Hamid ◽  
Amal Mohammed Almasawa
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Ownership Structure ◽  
Emerging Market ◽  
Ordinary Least Squares ◽  
Real Earnings Management ◽  
Standard Errors ◽  
Content Type

PurposeThis study aims to investigate the monitoring role of ownership structure (OWS) on real earnings management (REM) practices; previous studies primarily examined the effect of OWS on accrual-based earnings management.Design/methodology/approachThe sample of this study is 490 companies listed on the Malaysian Stock Exchange during the period 2013–2016 (1,960 company-year observations). The regression of a feasible generalized least square was used for data analysis. The authors use three regression models ordinary least squares, panel-corrected standard errors and Driscoll–Kraay standard errors to corroborate the findings and also examine alternative REM measures.FindingsAnalysis of the data shows that family, foreign and institutional ownership has a positive link with the quality of financial reporting and, to a large extent, is capable of alleviating REM. The findings also indicate that some form of OWS significantly affects REM, corroborating existing theories on corporate governance (CG) and the perspectives of practitioners.Practical implicationsThe evidence concerns the significant role played by the OWS in reducing REM activities. The findings are useful in support of regulatory activities, particularly in the design of policies to regulate the OWS. The results may also provide useful insights to inform other policymakers, investors, shareholders and researchers about the active role of family, foreign and institutional investors in monitoring Malaysia's public listed companies (PLCs) to strengthen CG practices. This also leads to less REM and enhances the quality of financial reporting.Originality/valueTo the authors' knowledge, this work is pioneering research from a developing country, specifically from Malaysia, to investigate the manner in which all possible OWSs influence REM. More importantly, the study recommends that regulators and researchers do not envisage OWS as a holistic phenomenon.

Walking a mile in their shoes: user workarounds in a SAP environment

2016 ◽  
Vol 24 (2) ◽  
pp. 185-204 ◽  
Author(s):  
Dawna M. Drum ◽  
Aimee J. Pernsteiner ◽  
Adam Revak
Keyword(s):  
Financial Reporting ◽  
Information Quality ◽  
Accounting Information ◽  
Internal Controls ◽  
Process Standardization ◽  
Content Type ◽  
Quality Of Accounting Information ◽  
The Difference ◽  
The Impact

Purpose The purpose of this paper is to examine workarounds from the perspective of the users of the system, focusing on the outcomes of workarounds and their effect on the quality of accounting information. Design/methodology/approach Interviews were conducted with employees in the accounting functions at two international organizations using SAP for their enterprise system. Results were coded by two experienced researchers and one undergraduate student, and included a categorization of the outcomes of workarounds. Findings The most striking result is the difference in views of workarounds between the two organizations. While workarounds are discouraged by the accounting function at both organizations, one seeks out workarounds and enforces standards while the other has not yet achieved process standardization. Not surprisingly, users view the workarounds of others as very detrimental to the quality of accounting information, but view their own workarounds as critical to maintain quality. Practical implications Organizations should obtain input from system users to document the extent that workarounds are used within the organization to determine the impact on the quality of their financial reporting. Originality/value The focus on outcomes of workarounds is an important shift in the literature, and more work is needed to further refine the categories used in this research, particularly for the effect of workarounds on internal controls and information quality. Additionally, this research surfaced a very strong difference in the actions taken to deal with workarounds, which may be due to organizational cultures.

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